I don’t own property in Switzerland, let’s start with that disclaimer. But from time to time, when we’re walking past homely-looking chocolate-box cottages by the lake, we do like to daydream about the possibility. To which end, in recent months, I’ve begun to do a little research.
In Blighty you can invest in bricks and mortar and reasonably expect annual gains of a good few percentage points. You could, before bankers bummed the world that is, also get a mortgage very easily indeed. That mortgage would likely be either a traditional repayment loan (principal and interest) or a risk-hugging interest-only type loan.
None of this really applies in Switzerland.
Although I’m still far from being able to explain all the ins and outs of it—the learning curve is slowly climbed with a housing market so complex and everything explained in French—I have deduced at least a little.
Here are just some of the bizzarities I’ve uncovered:
• You won’t make a killing in 5 years, à l’anglaise, unless you grab the deal of the century. Property values in Switzerland typically only rise in line with inflation, which means around 1% per year.
(Over the last decade or so, in popular regions such as on the shores of Lake Geneva/Canton Vaud, 1% a year has probably been too low. However during the last five years this growth rate has seemingly slowed again.)
• Despite this slovenly growth, house prices will melt your mind.
Prices are roughly similar to, or maybe a little higher than, those in Central London (at least in Canton Vaud where we’re located).
So for a new 3-bed, ground floor 1539 sq ft apartment in our village (2 mins from the shore of Lake Geneva), you might consider a tidy payout of 1,450,000 Swiss France or around GBP 1,018,000.
• In Switzerland you don’t necessarily have just one mortgage. You might have one. You might have two. Even 3.
Why? It’s complicated…
The short version – it’s all about how you want to balance your costs and risks.You don’t want to know more. Really you don’t…
You do? Really? Okay, the other version – Unlike in the UK, you cannot pay extra on a Swiss mortgage, except for at the very end of its term. Really. No overpayments. Secondly, before we go on, most mortgages are fixed interest.
Now… this means that if you had just one mortgage, of ten years say, you’d be stuck at an interest rate that could start to drive you insane (little percentage points make a big different if you’ve borrowed millions!). And you wouldn’t be able to throw that inheritance you received at this debt for years – so the capital you owed, and its interest, would stay annoyingly the same.
Therefore by having 2 or 3 mortgages of different terms (2 years, 3 years and 10 years say) you can spread out when each loan finishes. In other words, you’ll always have a loan that’s due for renewal (note: renewal not pay off) sometime soon.
With these more regularly renewing loans, you can then use that chunk of inheritance to pay a little more when one of your mortgage terms ends, reducing the capital you owe. And if interest rates have fallen in the meantime, you can benefit from renegotiating a better rate for the next 2/3/10 year stretch (or not, depending on rates).
In short, you’ve more opportunities to get better interest rates, and more chances to actually dent the capital owed a little.
Still with me? My brain aches just typing this.
However many mortgages you end up with, these will likely be a mix of interest-only and repayment loans. The biggest of these loans will be interest-only, so that your monthly premiums remain do-able.
• Forgot to mention – you can deduct taxes based on what you still owe on your mortgages.
This is apparently – to those in the know (read: those trying to sell you mortgages) – well worth being in millions of Francs’ worth of debt for. I remain unconvinced, but must confess to not having not done the sums.
• But conversely, home owners (including those with mortgages) pay a form of tax that is calculated based on what you’d pay to rent that same property. The reason for that particular policy, I’ve realised, I have zero chance of ever understanding.
• You need a deposit of 20% to get a mortgage. Considering the prickly prices, that’s no minor ask.
This sum can be, to a sadly ever-decreasing degree, covered by your Swiss mandatory pension pot (the sum you and your employer’s contributions have built up over time). Although of course you’ll then have virtually no Swiss pension to see you through your mercurial years, unless you’ve saved elsewhere.
• Should you pay your house off – in 70 years’ time say, considering the proportion of your debt you actually repay every year – you’ll pay Wealth Tax on its value.
• Ask a Swiss person and they’ll often tell you that prices are seriously over-inflated and should come down. They were saying this 5 years ago.
• Curiously, despite all of the above, if you want to be able to afford a little house with a garden, on a pair of normal working-professional Swiss salaries, buying is perhaps your only chance of affording such an abode. What with the prices of renting…
In conclusion, owning the property you inhabit in Switzerland appears to come down to this: paying the interest on your mortgage (and a tiny part of the principal) is effectively the equivalent of paying rent. On the plus side, with a mortgage, you’ll be able to get more house for your money than you would paying a landlord. And you can get deduct some of your debt from your taxes. Over in the Cons column, your financial life will be the bank’s. And you likely won’t ever actually own your home, you’ll just live in it. That’s just the mind shift you’ll just have to make if you want in.